Mercury Newspaper Opinion Piece Presto, the ol’ pea and thimble trick

ALL the heavy lifting has been done, all major decisions made. The Tasmanian Government is back on track. This is what the media releases and headlines tell us. But is it really the case? The fact the general government sector, which covers all departments and agencies commonly referred to as “the government” forms only part of the overall state sector, is often overlooked.

In value terms, government businesses represent 48 per cent of the state sector, meaning they are worth as much as all departments and agencies, hospitals, schools, roads and government buildings combined, but they scarcely get mentioned when we hear how the government’s woes are a thing of the past.

It is always a little irritating to be told, for instance, that no longer will the government divert money from hospitals, schools and police by putting funds into Forestry Tasmania as it had found a new way.

Instead, $30 million was taken from TasNetworks.

We all recognise a pea and thimble trick. The impact on the overall state sector was identical. Taking it from a parent company or one of its wholly owned subsidiaries has the same effect.

Hydro Tasmania was lumbered in the dying days of the previous Labor government with a gas business, comprising mainly the Tamar Valley Power Station, from Aurora Energy. The loss-maker came with $205 million of borrowings.

Governments have been promising to recapitalise Hydro Tasmania, which we all took to mean funds would be injected to allow Hydro to rid itself of the extra debt and make life easier in the future.

Sure enough Hydro Tasmania received the necessary equity injection in 2014-2015, sourced again from TasNetworks, but the level of borrowings did not change.

The new funds were split roughly between paying dividends back to Government and for capital expenditure on dams and other generation assets. So bad was Hydro Tasmania’s operating cash flow in 2014-2015 after the Abbott government’s repeal of the carbon tax, it fell by 90 per cent, there was no cash left to pay dividends to the Government or to spend on capital improvements.

The Government continues to insist on almost all Hydro profit being paid into government coffers, which makes it hard to manage borrowings, fund capital spending and pay returns to Government based on a prior year’s result when business conditions suddenly worsened.

We are continually told how much better the government sector is travelling under new management, but there is silence on the pain being experienced by some of its subsidiary businesses. The latter don’t complain. It’s their job to do as they’re told by shareholder ministers.

The Government’s operating cash flow for the year, revenue less expenses, improved compared to both the budget and the previous year’s actual figure. This is the basis of the claim that we are back on track.

Former Aurora chief executive Peter Davis at the launch of Tamar Valley Power Station in 2009.Source: News Limited

However, for the overall state sector net operating cash flow fell. The government sector may have had a better year, due in no small part to payments from its electricity businesses, but overall the state sector didn’t.

This is confirmed when profits, which include depreciation and other book entries, are considered. The government’s net operating balance improved but the equivalent figure for the overall state sector went backwards.

If further confirmation is needed, a quick look at the net debt position will suffice. The Government’s net debt position improved markedly in 2014-2015. We all remember the Treasurer crowing. But the overall net debt of the state sector didn’t change.

Arguably, it’s the overall state sector we should be focusing on if we’re discussing sustainability, not just the activities within government. It’s illusory to improve the general government at the expense of its subsidiaries.

I’m not trying to frighten the horses, simply asking the Government to present a more holistic view.

In summary, for the overall state sector, both operating cash flow and the operating profit figures fell in 2014-2015 as did overall net worth.

It’s difficult to construe this as a good sign. In any event we can’t turn a blind eye hoping the problem will disappear.

Electricity businesses comprise the bulk of government businesses both in revenue and expense terms but also balance sheet value.

Electricity entities were shuffled around in 2015. Aurora Energy lost its poles and wires and all its debt to TasNetworks and became a debt-free retailer. TasNetworks took over the transmission and distribution assets and the debt previously with Transend.

Overall the borrowings of the electricity businesses are now almost $2.6 billion, a rise of $200 million during 2014-2015. The increased borrowings in effect were needed to prop up the general government.

There’s no shortage of challenges facing the electricity businesses.

Dam levels are low, the net import of power via Basslink undertaken in 2015 is continuing with the current dry spell with no change expected in the near future, the electricity market is facing falling demand and competition from off grid alternatives, the gas market is in turmoil, Hydro Tasmania has missed the benefits of a reduced Basslink facility fee due to falling interest rates because it chose to fix the fee via a separate swap agreement and a second Basslink connector is pie in the sky making further development of large-scale renewables less likely.

In TasNetworks’ case it operates in a highly regulated market relying on favourable determinations by the Australian Energy Regulator.

Challenges are easily addressed if there’s available cash flow. Therein lies the problem.

It is likely the big reduction in operating cash flows during 2014-2015 suffered by government businesses won’t readily be reversed in the short term. These cash flows are what are needed to fund ordinary operations as well as service increased borrowings and provide returns to Government.

When contemplating our future, it is important not to overlook the other half of the state sector represented by government businesses.

Meanwhile, beware of Treasurers bearing peas and thimbles.

MLC Ruth Forrest is Independent Member for Murchison.

THIS ARTICLE WAS ORIGINALLY PUBLISHED IN THE MERCURY NEWSPAPER ON 3 NOVEMBER 2015.

About Ruth Forrest

Ruth was born in Burnie in 1962. She was raised on a farm at Riana and has lived on the North West Coast all her life. She attended Riana Area School, Ulverstone High School and Hellyer College and afterwards worked as a nurse and midwife in Burnie until she was elected to the Legislative Council in the Parliament of Tasmania in 2005. Ruth was re-elected in 2011. Ruth lives in Wynyard and spend a lot of time traveling within her electorate including Circular Head, the West Coast, Wynyard and King Island.